Larry Starr

This is a response without doing the research, so from memory and experience. It could be incorrect, but I believe it to be correct. I do not believe you can EVER throw someone out of the plan who has met the eligibility requirements applicable to them at the time just because you change them later. That would include someone who is in the plan but has no account balance for whatever reason. You can change eligibility to exclude certain classes of employees, but I'm not sure you can define the class as those who don't meet the new eligibility requirements AND have a zero balance in the plan. Being the end of December and still working under the "old rule" that the plan has to be adopted by year end, probably won't have time to do the more in depth research needed to confirm my memory/opinion. Would look forward hearing from others on this, especially with specific references if you can.

OK: I stand by my original statements. If a participating employer withdraws from participation and does not establish their own plan, then the participants from that employer are now terminated employees and distributions would be made the same as if they just plain quit.

I don't think you understand why SH provisions are used.

This may have to wait until during the week when I am back in the office. I see no reason why the TERMINATION of participation by the employer in a plan, so that now there is no plan covering that employer, is not a plan termination. I believe the language in my document regarding adopting employers covers that issue. I will TRY to remember to check during the week. I don't believe you have to do a "spin-off" to accomplish the same thing, so long as the appropriate language is part of the document or the amendment to "terminate" participation in this particular plan. We shall see....

The better question is why aren't you working with a professional to assist in doing your plan. Probably a "do it yourselfer" and the likelihood is that you will screw up something else along the way. I wish retirement plans were easy, but they're not. You did get the correct answer re your household employee.

Assuming no connection between the US and UK company, if she has legitimate compensation from the US company, she MUST be taken into account in the plan (but as the daughter, she is an HCE and can be zeroed out if desired). So, she surely can defer into the US plan without reference to what went on in the UK.

Well, of course, you can recommend anything you want. Since we service hundreds of plans, we will continue to run them the way WE think is best so long as the client is ok with that (and since they have no clue what it all means, they are always OK with that).

If there's a fee and the employer doesn't pay it directly, the recordkeeper will take it out of the plan funds; I guarantee you their contract gives them that right. They CAN'T not do the work or the liquidation and the plan will never be held hostage, they will just take their fee out of the assets if they have to.

They need to pay the expenses directly from the plan sponsor to the brokerage firm. Can't handle it as a reimbursement. Simple.

Please be more specific. Company A is the sponsor; Company B is an additional adopter of the plan. Does Company A want to continue their plan and Company B will terminate participation and not start a new one? I will assume so. The plan needs to be amended to eliminate Company B as a participating employer. That leaves Company A still as the sponsor and still with the plan. The employees of A do not have any change at all. The employees of Company B have their plan terminated and, yes, they will become fully vested and subject to payout. Does that handle your questions?

Your problem (and the client's) is that you have a "partner" who can't deliver the goods. Probably one of those "big box" ones! If a client called me this morning, we could have it done this afternoon, or by tomorrow at the latest. BTW, you don't have to PROVE that the employees got the SH notices; just distribute them. The answer is to get a TPA that delivers the goods.

One needs to ask (as usual!) WHY does she want to do that? What does she think she is accomplishing? If she wants to roll over the gross amount so that there is a larger IRA and no taxable distribution, then WHERE is she going to get the money to pay off the loan? She can't take it from the distribution as that results in the same situation of a smaller rollover. If she has the money outside to pay it off, then why doesn't she pay it off? NEVER answer a question a client or participant asks (Yes, I said that correctly: NEVER). Instead, always ask WHY are you asking that? Then you will find out the true agenda/issue and probably there is a better way to accomplish what the actual desire is. All, just, FWIW. As to your actual question (her question, which is probably the wrong question anyway....), the old chestnut of What does your plan (or loan policy) say? If it says it is offset at distribution, then NO, she can't write the check AFTER distribution. Did you review the plan provisions?

You posted this twice; see response in other message.

Liquidate assets? Yes, if the entity you are talking about is the custodian of the assets. I never am. But it's not a regulation, it's as a result of being a custodian and having to follow all those fiduciary rules (which are not necessarily even ERISA rules). Otherwise, there is no regulation requiring that the service provider provide anything/do anything if they haven't been paid.

Luke, you have a fundamental road block in your mind as to how these work. It DOES NOT work the way you are describing. There is no allocation of $75k in mutual funds and $25k of the loan to "each" of their accounts. THERE IS NO ALLOCATION OF ASSETS TO ACCOUNTS. They each simply have a $100k account, whether a loan exists or not. Now, we have a default. We reduce the account of the person who has the loan by the outstanding balance (ignore accumulated interest for this discussion). The assets are still the same ($150k in mutual funds and now a loan that has been closed out/fully recovered by offsetting the participant's account). We don't have to "move" anything (and we don't). We just do the math on his account. A's account isn't affected in any way by the default in your example. Has the light bulb gone off?

Bird gave you the right answer (and the only correct answer), but did you consider LOOKING at the existing SPD and what an SPD that has the different language looks like? If you have plans of that type all ready, you should have a ready resource to review the differences. And yes, if you do it as an amendment, you will definitely need an SMM to explain the different provision(s).

First, we have to assume that the independent contractor status is valid (and it might be; such operations are normal in that business; often the "contract barber" is renting a chair in the shop and booking her own clients, etc.). So let's assume it is legit for this example. Now, they get married. Yes, the two entities are now a controlled group and let's also assume the spousal exception doesn't apply. Can they have two Schedule C's seems to be the question. And the answer is "of course". They have two different businesses; what if she was a self-employed plumber but they got married? Still two different businesses. You are apparently getting waylaid by the fact that they work in the same physical location, but who cares? Yes, they are a controlled group, but they are both HCEs and assuming there is no NHCEs in either entity, then there is nothing that stops them from having two separate plans since 401(a)(26) does not apply to defined contribution plans. As long as there are no discrimination issues due to NHCEs, your situation looks fine to me, but that assumes all our assumptions above are valid.

I think that language is problematic. What determines credit-worthy? If the loan, when made, is 100% collateralized by his account balance, which is twice the size of the loan at the time of the loan, and he is employed and his regular loan payment is less than his regular paycheck, where is the problem? If he defaults, he DOES REPAY the loan to the plan by the reduction in his account balance. Therefore, he is credit worthy by the definition of how loans are handled in a qualified plan. I don't think there is any way (if my conditions above are met) that the participant could be classified as not creditworthy, and if this is applied to a NHCE, I think you have a discrimination issue as well. FWIW.